Euro-Area Unemployment Rate Reaches Record 11.2%: Economy

By Simone Meier -
Jul 31, 2012

The jobless rate in the euro area
reached the highest on record as the festering debt crisis and
deepening economic slump prompted companies to cut jobs.

Unemployment in the economy of the 17 nations using the
euro reached a revised 11.2 percent in May and held at that
level in June, the European Union’s statistics office in
Luxembourg said today. That’s the highest since the data series
started in 1995. In Germany, unemployment climbed for a fourth
straight month in July, a separate report showed.

Policy makers are weighing options to counter the turmoil
that has forced five euro-area nations to seek external aid,
eroded investor confidence and pushed companies to trim their
workforces. European Central Bank President Mario Draghi, who
met with U.S. Treasury Secretary Timothy Geithner yesterday in
Frankfurt, has pledged to do everything to preserve the euro.

“Companies generally are under serious pressure to keep
their labor forces as tight as possible to contain their costs
in the face of the current limited demand, strong competition
and worrying and uncertain growth outlook,” said Howard Archer,
chief European economist at IHS Global Insight in London.
“There looks to be a very real danger that the euro-zone
unemployment rate could reach 12 percent in 2013.”

Confidence Slump

The euro was little changed after the report, trading at
$1.2289 at 12:14 p.m. in Frankfurt. The single currency has lost
about 7.4 percent against the dollar over the past three months,
reflecting investor concern about a euro breakup.

Companies may continue to cut jobs as governments from
Spain to Italy are seeking ways to plug their budget gaps. Euro-
area economic confidence dropped more than economists forecast
in July, with households the most pessimistic in almost three
years, data showed yesterday. A gauge of manufacturers’
employment expectations declined from June.

The euro-area unemployment report was in line with the
median forecast of 28 economists in a Bloomberg News survey. The
statistics office had previously reported a jobless rate of 10.1
percent for May.

In Germany, Europe’s largest economy, the number of people
out of work rose a seasonally adjusted 7,000 to 2.89 million in
July, the Federal Labor Agency in Nuremberg said. The adjusted
jobless rate held at 6.8 percent.

‘Light-Hearted Times’

“The German labor market is clearly losing momentum,”
said Carsten Brzeski, an economist at ING Group in Brussels.
“Given the high level of employment, there is no need to panic.
However, indications are increasing that light-hearted times are
coming to an end.”

Today’s report showed that 17.8 million people were
unemployed in the euro area in June, up 123,000 from the
previous month. At 24.8 percent, Spain had the highest jobless
rate in June. Portugal reported unemployment of 15.4 percent,
with Ireland’s at 14.8 percent. France’s jobless rate was at
10.1 percent.

Alcatel-Lucent SA (ALU), France’s largest phone-equipment
supplier, said on July 26 that it plans to eliminate 5,000 jobs
after posting a second-quarter loss. PSA Peugeot Citroen (UG),
Europe’s second-biggest carmaker, has announced 8,000 job cuts.

The ECB in June forecast the euro-area economy will shrink
0.1 percent this year, before expanding 1 percent in 2013.
Inflation was seen at 2.4 percent and 1.6 percent this year and
next, respectively, according to its latest quarterly estimates.

Fed Meeting

The euro-area inflation rate remained at 2.4 percent in
July, the same as in the previous two months, the EU’s
statistics office said in an initial estimate today. It will
release a breakdown of prices including core inflation, which
excludes volatile costs such as energy, in August.

Europe’s debt crisis has also affected other parts of the
world. Taiwan’s economy unexpectedly contracted in the second
quarter from a year ago, South Korean output fell last month and
a Japanese manufacturing gauge in July reached the lowest level
since the wake of the 2011 earthquake, reports showed today.

The Federal Reserve starts a two-day policy meeting today
amid speculation it will add to monetary stimulus to boost the
world’s largest economy. U.S. consumer spending probably rose
0.1 percent in June following no change in May, a Bloomberg
survey showed ahead of a report later today.

The Conference Board’s index of consumer confidence
probably fell in July for a fifth month, the longest stretch of
declines since the first half of 2008, a separate poll showed.
The gauge is estimated to have fallen to 61.5 from 62 in June.

Draghi’s Efforts

In Europe, Draghi is attempting to win Bundesbank President
Jens Weidmann’s support for a multi-pronged approach to reduce
bond yields in countries such as Spain and Italy, two central
bank officials said. The proposal involves Europe’s rescue funds
buying government bonds on the primary market, flanked by ECB
purchases on the secondary market, they said.

“We’re in a recession for the euro zone as a whole,”
Christian Schulz, senior economist at Berenberg Bank, said in an
interview with Bloomberg Television in London today. “With the
ECB now jumping in potentially, hopefully, confidence can
improve. For the north of Europe, any stagnation or recession is
really caused by the crisis itself.”

The ECB, which last month cut its benchmark interest rate
to a record low of 0.75 percent, said yesterday that it didn’t
settle any government bond purchases under its so-called
Securities Markets Program for a 20th week. Still, Draghi said
on July 26 that policy makers are ready “to do whatever it
takes” to preserve the euro, suggesting they may intervene in
bond markets again. The next meeting is on Aug. 2.

“There’s still an awful lot of skepticism out there of
whether they’ll deliver,” Charles Diebel, head of market
strategy at Lloyds Banking Group Plc, told Caroline Hyde on
Bloomberg Television’s “On the Move” yesterday. “The previous
efforts to support the market via the SMP were insufficient,
they really didn’t do anything but load the ECB balance sheet
with a bunch of peripheral bonds. It needs to be more than that
and policy makers are probably aware of that.”